The past few years have seen a growing shift away from traditional development cooperation and development finance institutions (DFI) towards impact-driven individuals and foundations, like the Gates Foundation, the Mastercard Foundation or the World Economic Forum’s Giving to Amplify Earth Action (GAEA) initiative1.
Impact-Driven Capital
The most significant sign of the shift is that, at its Davos meeting this year, the World Economic Forum’s Giving to Amplify Earth Action (GAEA) initiative said that it was on track to become the single largest market signal of philanthropic and impact capital to private and public actors, with approximately $200bn of aggregated capital2. It has pivoted into climate and nature solutions around the world.
“Global challenges can only be effectively addressed through global collaboration integrating all stakeholders. GAEA is adding the missing piece to the public-private cooperation initiatives of the World Economic Forum: philanthropy,” said Professor Klaus Schwab, Founder and Chairman of the World Economic Forum3.
Launched in January 2024, GAEA is now working with 140 partners to help bridge the green finance gap by unlocking public and private investments and to steer the world towards a net-zero and nature-positive future. The initiative has so far brought together $5bn of new climate and nature investments through its members’ commitments4.
In just over a year, it has inspired a number of high-profile global projects and initiatives which include Bridgewater Associates founder Ray Dalio, who has established a Blue Capital Collective committed to revolutionizing blue finance to unlock the sustainable growth of the ocean economy. Meanwhile, Eileen Rockefeller and Paul Growald have set up the Coal-to-Clean Initiative, a financing vehicle to help the coal transition in emerging markets and Fred Tsao, Chairman of the Tsao Pao Chee Group, has established a foundation to help fund climate and nature projects5.
But the GAEA initiative is just the most high-profile example. Other private initiatives and projects are leading the way to complement and sometimes fill the gap where traditional development finance and partners have faced continued withdrawal. Take, for example, the Mastercard Foundation and its Africa Works strategy which wants to enable 30 million young people across Africa to access dignified and fulfilling work by 20306. It works through African Investment Vehicles to support growth-oriented SMEs on the continent with the goal of enabling dignified and fulfilling work for young people, particularly young women7.
The Challenges with Traditional Development Partners
There is a shared perception that funding from traditional development partners, including DFIs, is often very slow and bureaucratic primarily due to such institutions’ internal and decision-making processes which prevent other potential actors from getting involved.
The delays and challenges that DFIs and DFI-sponsored development projects often face are well-documented and have significant knock-on effects on projects and initiatives8. In particular, they can throw into doubt timings which can jeopardize project implementation and further delay urgent and needed critical social and economic infrastructure in beneficiary countries.
The hazard of international politics has also crept into discussions of funding from some traditional DFIs. This is specifically the case with projects that might have approached DFIs in the U.S. Within his first three weeks in office, President Donald Trump issued an executive order that put a halt to nearly all foreign development assistance funded by or through the Department of State and the U.S. Agency for International Development (USAID) for 90 days, pending a review9. It is possible that USAID may be restructured, folded into the Department of State, or abolished permanently.
The freezing of USAID funds and its potential dismantling have affected vital development projects in the countries of the Global South that represent central pillars of health management (e.g. vaccination campaigns), peacebuilding or humanitarian aid10. Without USAID, millions of people across developing countries will lose access to jobs, food, healthcare, and education11. There is also a specific question mark over the future role of the International Development Finance Corporation (DFC), which is up for reauthorization later this year12.
All of these questions mean that projects that need funding have been looking elsewhere.
USAID Spending in Sub-Saharan African Nations in 2024
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Source: Semafor
The Challenges with Traditional Development Partners
There is a shared perception that funding from traditional development partners, including DFIs, is often very slow and bureaucratic primarily due to such institutions’ internal and decision-making processes which prevent other potential actors from getting involved.
The delays and challenges that DFIs and DFI-sponsored development projects often face are well-documented and have significant knock-on effects on projects and initiatives8. In particular, they can throw into doubt timings which can jeopardize project implementation and further delay urgent and needed critical social and economic infrastructure in beneficiary countries.
The hazard of international politics has also crept into discussions of funding from some traditional DFIs. This is specifically the case with projects that might have approached DFIs in the U.S. Within his first three weeks in office, President Donald Trump issued an executive order that put a halt to nearly all foreign development assistance funded by or through the Department of State and the U.S. Agency for International Development (USAID) for 90 days, pending a review9. It is possible that USAID may be restructured, folded into the Department of State, or abolished permanently.
The freezing of USAID funds and its potential dismantling have affected vital development projects in the countries of the Global South that represent central pillars of health management (e.g. vaccination campaigns), peacebuilding or humanitarian aid10. Without USAID, millions of people across developing countries will lose access to jobs, food, healthcare, and education11. There is also a specific question mark over the future role of the International Development Finance Corporation (DFC), which is up for reauthorization later this year12.
All of these questions mean that projects that need funding have been looking elsewhere.
USAID Spending in Sub-Saharan African Nations in 2024
Tap to find out more
Source: Semafor
New Actors of International Development
Private foundations are “the new actors” in international development13. A sign of how popular and important this type of funding has become is that the market is expected to hit $1tn this year14.
These entities are categorized as non-governmental, non-profit organizations that are self-sustaining due to an endowment and are accountable to the organization’s board of directors15. Their process of disbursing funds is typically much faster than other routes as they are organizations which are much more efficient and market focused.
How Impact Investing Has Grown
Source: CauseArtist
What makes this type of funding differ from traditional DFIs is that investments aim to achieve both financial returns and positive social or environmental outcomes. Investors are not just concerned with what profits a venture can generate, but also how it benefits the planet and its people.
For the recipient, it is attractive because investing can occur across all asset classes, including venture capital, private equity, debt, and fixed income. And returns can be higher than traditional investments16.
The Gates Foundation has been working alongside national governments, local organizations, and private sector partners specifically on healthcare and agriculture projects that can be boosted by digital technology17. In October last year, it opened an office in Senegal, its first in West Africa18.
In Senegal, Mastercard also announced a $45mn partnership with the Institut Pasteur de Dakar in September 2023 to develop a training hub that will enable young people across Africa to acquire skills in vaccine manufacturing, production, and distribution. Based in Senegal, the Manufacturing in Africa for Disease Immunization and Building Autonomy (MADIBA) project goes a long way towards achieving vaccine manufacturing autonomy in Africa. At the moment, less than 1% of vaccines administered in Africa are manufactured locally, placing a significant financial burden on the health systems of African countries19.
Increase in Proximate Grantmaking by the Gates Foundation and Mastercard Foundation
Source: The Bridgespan Group
The Mastercard Foundation Africa Growth Fund also supports growth-oriented SMEs, particularly those set up by young women. Notable investments include Aruwa Capital Management, a Lagos-based female-founded and led early-stage growth equity and gender lens investment fund which is generating strong financial returns as well as positive social impact and improving the quality of lives of millions of people in underserved and overlooked communities20.
Elsewhere, the UBS Optimus Foundation has set up a program with the Rockefeller Foundation to help provide schools in Uganda with access to clean water21.
A Credible Alternative
All of this is a wake-up call for DFIs and traditional development partners. Growing awareness of the limitations of funding from DFIs and traditional development partners makes private foundations a credible alternative partner in funding high-impact development projects and initiatives in many countries in Africa.
Foundations are welcoming the attention not just because of the returns, but also because of the desire to have a real impact on the ground and be seen to do good.
While funding from DFIs and development partners continues to be critical to social and economic infrastructure in beneficiary countries, including much needed development projects with low bankability, these traditional actors need to be more pragmatic and align their funding and project execution processes with the urgent needs of the target populations on the ground to maintain their role in the funding landscape.
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